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How blockchain technology can change politics
EcoPol Journal / 18 March 2022
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Master in Management Class of 2023
Cedric is a Master in Management student at FS and a research associate at the Frankfurt School Blockchain Center (FSBC) and an all-around crypto enthusiast. His main focus is currently on sustainability aspects of Bitcoin, play-to-earn gaming, and decentralized finance in general.

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If you’re like most people, you’ve heard of Bitcoin. Chances are you’ve probably also heard a bunch of buzzwords thrown around, dog-coins going to the moon, and NFTs selling for hundreds of thousands of dollars. With all the hype, it is important to take a step back and understand what a blockchain really is. A database. So why are so many convinced that this technology will have such a significant impact?

Put simply, a blockchain is a database or a list of transactions that are synchronised across a vast network of computers that no one party controls. This means that blockchains are decentralised. They cannot be controlled or manipulated yet remain open for anyone to participate in them.

What started with simple A to B transactions with Bitcoin has quickly evolved into more advanced applications with the introduction of smart contracts. In general, the Blockchain promises to make how we transact with one another more equitable, transparent, and inclusive.

Updating Democracy

Democracy, as a formal political system, originated in ancient Athens around 500 B.C. and while the fundamental philosophy of fairly distributing power still very much applies, a lot has changed since then. In recent years, our western democracy has been facing an increasing number of challenges. Unfulfilled campaign promises, influence from lobbying groups, disenfranchised voters, and an inability to effectively tackle complex global issues such as climate change.

Some have suggested clever integration of blockchain technology could solve some of these issues, while others warn that such applications will undoubtedly lead to disaster. Let’s take a closer look at some possibilities and potential issues.

Possibilities and potential issues

Firstly, transparency. Integrating Blockchain into the electoral system could allow voters to directly see that their vote was counted correctly. Not just instantly after submitting it, but they could be able to see their vote immutably recorded on-chain and verify the overall election result. The pseudonymous nature of public/private key cryptography would transparently allow this without voters needing to compromise on privacy. One potential issue here would be Sybil attacks, in other words, one party creating multiple accounts and voting repeatedly. This is one of the most common criticisms of a blockchain-based electoral system. Zero-knowledge proof of identity or a form of self-sovereign identity could be used to prevent this, however, there may be privacy trade-offs.

Secondly, a problem in politics today is accountability. Candidates in an election can make a plethora of non-binding promises in an effort to secure a win. Using smart contracts (essentially a pre-programmed series of “if-then” statements involving digital currency) trust could be taken out of the equation. Candidates could back up their promises by creating a binding budget before an election which would automatically be enacted, with funds being distributed, if they win the election. Essentially, allowing candidates to put the money where their mouth is.

And finally, representative democracy, as opposed to direct democracy, offers convenience in exchange for control. Constituents vote for a representative that largely matches their beliefs, even if they differ on certain issues. Blockchain voting would, in theory, make direct democracy on a large scale feasible. Voters could vote directly on the issues that matter to them without the need for representation. Furthermore, the accessibility of blockchain voting would certainly boost voter turn-out.

Of course, there are also valid issues and concerns regarding the integration of blockchain technology in the democratic system. For one, many voters, especially older generations, might have a difficult time following secure procedures and may fall victim to a variety of attacks. This may lead to a need for centralised fail-safes, which may also be vulnerabilities or privacy infringing. Additionally, since the Blockchain is permanent, voters may be concerned about their anonymity long-term (unless zero-knowledge proofs are used).

Decentralising governance structures

Another aspect worth exploring is not how Blockchain can be used to enhance existing governance structures. It is how Blockchain can augment and potentially replace certain functions traditionally served by governments.

Recently a new type of token has gained popularity. The governance token. Governance tokens are mainly used to decentralise control over dapps (decentralised applications). Examples include AAVE, UNI, POOL, and many others. Holders can put forth and vote on proposals regarding changes to the protocol (fees, the addition of tokens, etc.), distribution of funds, etc. Proposals are typically discussed first and then formally submitted for voting.

Take Uniswap as an example: Uniswap is the largest decentralised exchange by volume. In September of 2020, they sent every wallet that had previously interacted with the application 400 UNI tokens. One UNI token represented a vote, and anyone with access to 10,000,000 UNI tokens was able to submit a new proposal. Among the first proposals were one suggesting lowering the amount needed to submit proposals from 10m UNI to 3m, there was a proposal to establish a DeFi (Decentralized Finance) education fund, and just recently, there was one to deploy Uniswap on Polygon (an Ethereum Layer2 – Layer2s allow blockchains to process more transactions resulting in lower fees for users).

That’s not all

Decentralised Autonomous Organisations (DAOs) take the concept of governance tokens a step further. They are communities pursuing a common goal. DAOs have one or more tokens representing voting rights, proportional ownership of a treasury, and more. DAOs can be used to pool funds and collectively invest, they can be used to coordinate projects or clubs and a practically limitless number of other functions. An interesting example is PAC DAO which serves the purpose of lobbying for crypto-friendly legislation.

I recently gave a presentation in the DeFi Talents programme about DAOs. One of the questions that came up was whether and to what extent DAOs will replace traditional governments. While answering this question goes far beyond the scope of this article, it is a logical and interesting one to ask. The ability to collect funds and distribute them to maximise benefit is one of the core functions of government. DAOs have the ability to make this process voluntary and pseudonymous.

Conclusion

Blockchain technology promises a variety of ways to increase transparency, access, and representation in politics. On the other hand, there are still a lot of questions left open, chief among them being whether society is ready. While other areas of application of blockchain technology, especially in finance, have been thoroughly explored, this application has mainly been explored in theory. That being said, it is a very promising use case, allowing us to reevaluate some of the fundamental philosophical questions about the systems that govern us.


Any FS student can contribute to the EcoPol Journal. If you would like to contribute, please send an e-mail to ecopol_journal@fs-ecopol.de with your idea proposal. Any topics that you believe are relevant and interesting are welcome.


 

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